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Hearing on the Internal Revenue Service’s Exempt Organizations Division Post-TIGTA Audit

September 18, 2013

Hearing on the Internal Revenue Service’s Exempt Organizations Division Post-TIGTA Audit










September 18, 2013


Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan,Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
DIANE BLACK, Tennessee
TOM REED, New York
MIKE KELLY, Pennsylvania

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel


CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee
TOM REED, New York
MIKE KELLY, Pennsylvania






Advisory of September 18, 2013 announcing the hearing


Daniel Werfel
Acting Commissioner, Internal Revenue Service


Hearing on the Internal Revenue Service’s Exempt Organizations Division Post-TIGTA Audit

Wednesday, September 18, 2013
U.S. House of Representatives, 
Committee on Ways and Means, 
Washington, D.C. 


The subcommittee met, pursuant to call, at 2:04 p.m., in Room 1100, Longworth House Office Building, Hon. Charles Boustany [chairman of the subcommittee] presiding.

 [The advisory of the hearing follows:]


Chairman Boustany.  Welcome to this afternoon’s hearing on the Internal Revenue Service’s Exempt Organizations Division.  In May, the Treasury Inspector General for Tax Administration released an audit exposing the Internal Revenue Service’s practice of targeting applicants for tax-exempt status based on name and policy position. 

The audit confirmed what many feared, that the IRS was treating applicants differently based on their beliefs by subjecting them to endless delays and intrusive information requests.  Today we want to bring a disinfecting sunshine to the audit branch of the IRS as well. 

Since the release of the Inspector General’s report, the Ways and Means Committee has sought to determine the extent of the targeting and who was responsible.  Additionally, we are working to ensure that the IRS is addressing the failures or wrongdoing that led to the targeting and making progress to restore the public trust in the agency.  To date, committee staff have reviewed a total of 25 IRS officials and is reviewing ‑‑ I am sorry, interviewed a total of 25 IRS officials and is reviewing roughly 300,000 internal IRS documents that have been provided.  And while the investigation is far from over, it is now possible to make some provisional findings. 

We now know that in May of 2010, Lois Lerner, the former head of Exempt Organizations Division, currently on paid administrative leave, was told that Tea Party cases were held pending guidance from Washington, D.C.  We now know that Lois Lerner took a special interest in Tea Party, based on an email sent to colleagues in February of 2011 saying that the Tea Party matter was very dangerous, and in follow‑up emails suggesting how to deny the applications. 

We now know more than 298 applications were put on hold, and from committee review of each individual case, investigators discovered that 248, or 83 percent, were right leaning and 29, or 10 percent, were left leaning.  Of the right leaning groups, only 45 percent have been approved while 70 percent of the left leaning groups have been approved.  100 percent of the groups with “progressive” in their name were approved. 

We now know that of all the groups that were inappropriately subject to demands to divulge their donors, 89 percent were right leaning, and we now know 4 months after the audit’s release there continues to be some confusion in Cincinnati about how to handle so‑called advocacy cases. 

Investigations often take unexpected turns, and this one is no exception.  In the fall of 2010, Lois Lerner explained to a group of Duke University students that following the Citizens United decision, 501(c)(4) organizations were getting involved in political activity.  She said, “Everybody is screaming at us.  Fix it now before the election.” But Lerner explained, “I won’t know until I look at their 990s next year whether they have done more than their primary activity is political or not, so I can’t do anything right now.”

To date, the investigation’s focus has been on the IRS’ handling of applications for organizations seeking exemption, but Lerner’s remark ‑‑ her remarks when she said, and I quote again, I can’t do anything right now, end quote, raises questions over the role of the Examinations Unit which handled Form 990s, the annual form that is filled by exempt organizations.

Since spotting the issue, the committee has begun to pursue a new branch of the investigation; that is, whether Lerner used the Exempt Organizations’ Examinations Unit to target right‑leaning groups.  Keep in mind, this is different from the Determinations Unit where the investigation has focused so far.  The committee has discovered that among the hastily approved applications for exempt status in the early summer of 2012, a large number were flagged for IRS surveillance by Washington, D.C.  Of those flagged, more than 80 percent of the groups were right leaning. 

The IRS surveillance program called a review of operations is conducted by the EO Examinations Unit in Dallas and involves the monitoring of a group’s activity.  The consequence of being in the program is that surveillance can lead to an audit.  Additionally, we discovered that through a process approved by Lerner EO Examinations itself flags groups for surveillance based on complaints received from inside and outside the agency.  94 percent of all organizations flagged for surveillance by the Examinations Unit were right leaning, but most startling in all of this, of the organizations referred for audit from this process, 100 percent were right leaning. 

To highlight the question of whether the examinations process is unbiased, the IRS informed the committee 2 weeks ago that it had suspended both surveillance ‑‑ the surveillance orders from D.C. and the audits pending further review.  Four months after Lois Lerner’s apology for targeting, there are many questions that are still outstanding, and frankly, we still don’t have all the answers that we need.

What is clear is that IRS faces a long road to recover its reputation, and the only way to get there is through transparency and accountability. 

And with that, I would be happy to yield to the ranking member, Mr. Lewis from Georgia, for an opening statement.

Mr. Lewis.  Thank you very much, Mr. Chairman.  I want to thank you for holding today’s hearing on the Internal Revenue Service.  I am pleased to have Acting Commissioner Werfel before us today.  I look forward to discussing the positive changes Mr. Werfel has made as a result of the recommendation from his 30‑day report. 

From the outset, the Democrats have been crystal clear on this issue.  The IRS was very wrong to use inappropriate criteria to single out an organization by name rather than by actual activity when processing tax-exempt applications.

Mr. Werfel, we appreciate the swift action you have taken to restore the public trust and to enhance the integrity of the IRS.  We believe you are on the right path, and we value your effort as we move forward. 

Unfortunately, my friends on the other side of the aisle continue to frame this issue as a partisan one as only affecting conservative groups time and time again.  The facts have shown that both Republican-leaning and Democratic-leaning groups were singled out during the application process.  In fact, the IRS Inspector General appointed by former President Bush testified many times under oath that he finds no evidence of political motivation in the selection of tax-exempt applications.  This office also found no evidence of political motivation after reviewing over 5,500 emails from IRS employees. 

We know why we are here today, for Republicans to distract from their lack of a positive legislative agenda to improve the economy, create jobs, and fund the government.  In fact, a report released by the IRS Inspector General only yesterday stated that enforcement collection was down by $5 billion.  That is a 9 percent decrease in fiscal year 2012 because of budget cuts.

The sequester is harming government operations.  We need to be focusing on ending sequestration creating livable jobs.  I urge each and every member of this committee to come together and join a bipartisan effort.  We must help the IRS improve its service to the American people rather than continue erroneously to cast partisan blame. 

Mr. Commissioner, I look forward to hearing from your testimony, and thank you very much.  And with that, Mr. Chairman, I yield back.

Chairman Boustany.  I thank the ranking member. 

Now, it is my pleasure to welcome our witness today, Mr. Daniel Werfel, Acting Commissioner of the Internal Revenue Service.  Acting Commissioner Werfel, thank you for joining us today.  I know you have been very busy and we appreciate you being here with us today to provide testimony. 

The subcommittee has received your written statement, and it will be made part of the formal hearing record.  As is customary, you will have 5 minutes to give your oral remarks, and now you may begin, sir.


Mr. Werfel.  Chairman Boustany, Ranking Member Lewis, and members of the subcommittee.  Thank you for the opportunity to appear before you today to discuss current practices and procedures of the IRS Exempt Organizations Division.  The IRS has been moving aggressively to implement the robust action plan outlined in my 30‑day report to correct the problems with the 501(c)(4) application process described in the TIGTA report released in May.

Through this action plan, we are making improvements throughout the Exempt Organizations area and are undertaking a major effort to examine other aspects of IRS operations to reduce future risks to the tax system.  The progress we are making is fostered by the new leadership team installed within EO and also in the top echelons of the agency.  The leadership team blends management experts from outside the agency with long time IRS leaders from other divisions who have proven track records in their areas of expertise. 

Our progress is also a testament to the dedication and commitment of the employees within our Determinations Unit and throughout Exempt Organizations. 

The last few months have been extraordinarily active ones.  We are carrying out a robust project management plan coordinated by the Commissioner’s office to implement more than 60 action items.  These 60‑plus items encompass the nine recommendations included in the TIGTA report as well as other actions we are taking.  Highlights of what we have accomplished to date include the following: 

First, we have improved the screening criteria for applications for tax exempt status.  Since the BOLO lists were suspended in June, we have issued guidelines and instructions to EO personnel requiring screening assessments to be based on activity, not names or labels.

Second, we have strengthened checks and balances in cases where additional detailed information is needed to process an application for tax exempt status.  Managers are now reviewing these requests before they are sent out and we are working to standardize their language. 

Third, we have enhanced training for the Exempt Organizations personnel in the proper ways to review applications to determine the extent of political campaign activities.  Verbal and written instructions have been issued to managers and screeners, and we are working to incorporate this information into our formalized instructions, particularly the Internal Revenue Manual.

Fourth, we have reduced the inventory of 501(c)(4) applications, including the group of 132 cases pending for 120 days or more as of late May.  As of last week, 91 of those 132 cases, or 69 percent, have been closed, of which 70 applications were approved.  This includes 36 organizations that took advantage of a self‑certification option we recently offered. 

Fifth, we have expanded our scope beyond 501(c)(4) case inventory to also investigate ways to reduce the inventory of applications for 501(c)(3) status.

Sixth, we have launched the Enterprise Risk Management Program which will enhance our ability to identify and manage future risks wherever they exist within the IRS.

Seventh, we are using a Lean Six Sigma management methodology within Exempt Organizations to further improve the determinations process and more efficiently process applications.

Eighth, we are implementing a comprehensive plan for reviewing audit selection criteria throughout the IRS to ensure fairness and impartiality.

And ninth, we are working with the National Taxpayer Advocate to increase taxpayers’ awareness of mechanisms at their disposal for resolving issues with the IRS.

Amid all the efforts the IRS is making to improve operations, we are still mindful of the responsibility we have to ensure tax compliance.  While we work to ensure fairness and efficiency in making determinations about tax exemption, we will continue to uphold the law as it relates to Exempt Organizations, and we will continue to meet our obligation to grant tax exempt status only to those organizations that are fully eligible. 

We are also mindful of the need to be transparent and to work closely with Congress.  We seek to be as responsive as possible to requests for information from Congressional committees in order to help them carry out their responsibility to oversee our agency and its operations.  For example, we have reviewed and produced roughly 390,000 pages of documents in response to requests from this committee.  We still have a great work to do in setting a course for the IRS and many challenges remain, but I believe that we are moving in the right direction and we will continue to make progress in the weeks and months ahead. 

This concludes my statement, and I will be happy to answer any questions that you have.

Chairman Boustany.  Thank you, Mr. Werfel. 

[The statement of Mr. Werfel follows:]

Chairman Boustany.  And let me start by saying we received a number of documents toward the end of August, and we appreciate that, and we still have outstanding requests in place and we expect that you will continue on the same path to get these documents to us as quickly as possible.

Mr. Werfel.  We will.

Chairman Boustany.  One of the alarming findings so far in our investigation is the effect or seeming effect of this IRS surveillance program, and we are trying to get a better handle on it.  The IRS gives it the name “Review of Operations” as part of the Examinations program, but under the program, IRS may lack a compelling reason to deny an organization tax exempt status.  So an organization is approved, but then the IRS then, I guess, secretly decides to keep tabs on it, monitoring the group’s website and public documents and activities.  Sometimes this can turn into a full blown audit, and worst of all, just based on some of the statistics we have seen in this, it appears that right‑leaning groups were targeted almost exclusively, and you know, statistics don’t lie.  I mean, we have statistics. 

Just to review that again, of all the groups EO Determinations referred to the surveillance program, 83 percent were right leaning.  Of all groups selected for surveillance, 94 percent were right leaning, and finally, all groups that were subjected to surveillance were selected for a full blown audit, 100 percent of them being right leaning.  

I want to give you an opportunity to explain that because we saw those numbers and it certainly raised flags.

Mr. Werfel.  I can explain, and offer some additional information for context.

First of all, I think we need to pause on the numbers that you are reporting because I think there may be some discrepancies between the information that I have.  There is ‑‑

Chairman Boustany.  This is the information we have ‑‑

Mr. Werfel.  Right.

Chairman Boustany.  ‑‑ from the documents.

Mr. Werfel.  Part of the challenge here in the limited time is to explain the process for the Review of Operations, so there is some background and context.  You referred to it earlier as secretive, and I intend to not be secretive at all and answer any questions that you have about that process. 

But the way the process works, in essence, is we get referrals for Exam. We get referrals from Exam from other parts of the IRS, we get referrals from Exam from other agencies in government, from Members of Congress, from members of the public, and the question is, how do we deal with all those referrals and how do we decide what to do with them in terms of whether an entity is ‑‑ an exam is warranted or not. 

And we have set up a process called the “Review of Operations,” where if the referral is about the question of whether an entity is engaged in political activity such that it would potentially call into question their tax exempt status, we set up a process to deal with that type of referral, and we have someone in our examinations process who looks at that referral, and if it is political and they determine that it is political, they will send it to a reviewer in the ROO, or the Review of Operations, and they will take a look and they will assess and research it and determine if this is a case that is potentially worthy of exam and what priority should be placed. 

So they will take that case, and they will make a decision.  They might decide no exam is necessary.  They might decide an exam is appropriate, and they might decide it is high priority, or they might decide an exam is appropriate and they might decide it is medium priority. 

If they decide that an exam should happen, they will forward that to a committee.  We call it the Committee of Three, and these are made up of these three people, experienced civil servants and front line management officials, and they decide by majority of vote whether yes, indeed, this referral does warrant an exam and ‑‑

Chairman Boustany.  That is a unanimous vote, right?  Unanimous by the three‑person panel? 

Mr. Werfel.  It is my understanding it is majority, but I will get confirmation for you on that.

Chairman Boustany.  Okay.

Mr. Werfel.  Now, the numbers that you were citing and there is a whole set of statistics that I can try to get you.  I don’t have them at my fingertips, but the numbers that you were citing related, I think, to something different, and that is, is that at some point in the process, the Determinations Unit, before I arrived and as the events in the TIGTA report were unfolding, the Determinations process were forwarding certain applications to the ROO for potential consideration, potential future action, and there were 60‑some‑odd cases that were forwarded for the ROO for review, and that is the numbers, I think, that you were citing.

But there is a whole broader set of referrals that come into the ROO, and the percent of what is on one side of the spectrum or the other is something I don’t have at my fingertip to know.

Chairman Boustany.  So I understand this correctly, these ‑‑ the numbers I cited, you are saying that these came directly from the Determinations Unit and not from outside sources to Examination? 

Mr. Werfel. These referrals came from the Determinations Unit, but let me finish the story here, which I think is important.  Which is, when I installed new leadership into EO, a gentleman by the name of Ken Corbin, who is our acting director of Exempt Organizations, he immediately sent those 60 right back to the Determinations Unit and asked them to relook at the issue because  what Mr. Corbin is doing is essentially reviewing all the procedures associated with EO in general.  That includes Determinations.  That includes Exam.

Chairman Boustany.  Yeah.

Mr. Werfel.  And he is taking certain steps to make sure that everybody is re‑baselined and that everything that moves forward is done over appropriate safeguards.  So all the numbers that you just cited, all of those are no longer with the ROO.

Chairman Boustany.  Okay.

Mr. Werfel.  They have all been sent back.

Chairman Boustany.  It is my understanding these numbers were ‑‑ these were numbers referred to Exam, these were flagged cases that then 100 percent of those were ‑‑ that got audited were right‑leaning groups.  I mean, others were referred, too, but the number ‑‑

Mr. Werfel.  Let me clarify that, too.  There has been no audits.  In fact ‑‑ and I know this is a question that the committee may have, and I am happy to delve into it.  There have been no exams that have been completed of any organizations for potential political activity from 2012 through 2013, and we are still in a period of suspending all exams.  And if the exam was started, the taxpayer was contacted and said we are suspending the exam.  Why?  Again, because when I sent new leadership in, Ken Corbin, I asked him to make sure that all the appropriate safeguards are in place to ensure fair, effective, efficient processes within EO, and so we paused in the exam while we could examine this entire process that you are referencing, to make sure that it has those appropriate safeguards, and we will restart exam when that review is done and when we have assurances that all the safeguards are appropriate.

Chairman Boustany.  Because the cases I am referring to were all ‑‑ they were referred by Dallas ‑‑ these were already in Dallas, referred by Dallas for audit. 

Mr. Werfel.  Right.  Those are 60 cases, and again, those have been sent back to Dallas and are no longer on a path towards potential exam at this time.

Chairman Boustany.  So that whole process is on hold.

Mr. Werfel.  The whole process is on hold.

Chairman Boustany.  Okay.  Bottom line is, we want to make sure that this process is fair.

Mr. Werfel.  Absolutely.

Chairman Boustany.  And proper safeguards, and I know, according to the IRS, the three‑person committee process that is put in place is, quote, to ensure equity, transparency, that no one individual could select organizations within certain classifications for examination, end quote.

Mr. Werfel.  Absolutely.

Chairman Boustany.  Right.

Mr. Werfel.  Yeah.

Chairman Boustany.  So, as we look at this examination process, and again, we are ‑‑ we have just started going down this pathway, do you have any information to suggest that Lois Lerner sought to influence any particular audit selection decision? 

Mr. Werfel.  I have ‑‑ let me start with this.  That we have safeguards in place that would prevent an individual from doing that.  And you just described, we have this Committee of Three. 

Chairman Boustany.  Well, that is the statement, but we are not sure if the process ‑‑ I mean, it is one thing to have the directive, but we are worried about the fact that, you know, with the numbers I cited, that perhaps we saw some intervention.

Mr. Werfel.  I have no evidence that I am aware of where you can say from point A that an individual in the IRS directed that a certain audit should or shouldn’t happen and that it actually did or did not happen.  And one of the reasons ‑‑

Chairman Boustany.  You can’t rule it out yet, though.  You can’t rule out that there was some meddling with the process.

Mr. Werfel.  Well, we are working through all the documents and we are looking at all the issues, and you know, sending all those documents to you, and to the extent there is something that should be flagged and looked at, we are ready to flag it and look at it, but I am not aware again of this situation in which an individual intervened to make sure an entity got audited or not audited and that actually happened. 

Chairman Boustany.  One last question.

Mr. Werfel.  Yeah.

Chairman Boustany.  Did Lois Lerner seek to intervene in the examinations process or audit process? 

Mr. Werfel.  I am not sure that I can fully answer that question because all those documents in Lois’ email file need to be further reviewed.  I will say this, that there were emails that we turned over to you, based on your request.  Again, my message here and part of my focus point is ensuring transparency, so you have the full complement of Lois Lerner’s emails, and there are certain documents that raised questions.  And when I looked at them, I thought they raised questions, and so what I have done is I provided the ones that I thought ‑‑ I gave them all to you.  The ones that I thought raised questions, I provided directly to TIGTA and I also provided them to the Accountability Review Board within the IRS, which is set up to review this matter to see what actions may warrant personnel action or discipline. 

And so, a lot of these emails need to be looked at, they need to be evaluated, they need to be better understood, and so we are in the process of doing that.

Chairman Boustany.  Right.  And you can understand our concern.  When we saw those initial numbers and then Lois Lerner’s statement, you know, that I can’t do anything right now raised a flag, and so the fact that you cannot rule this out that she sought to intervene in the process, the examinations or audit process, is something we need to continue to ‑‑ both you have to pursue it, we have to pursue it.

Mr. Werfel.  Yeah.  I provided relevant documents to the right processes, including your committee, to further pressure test on these questions, but again, one of the keys to my focus point is making sure that going forward there are specific safeguards in place to prevent this.  I don’t know that it happened.  I have no evidence that points to that someone influenced and we actually had an audit decision changed, but what I do know is right now, Ken Corbin and the team are looking to make sure that there are appropriate safeguards at every angle so that none of this ‑‑ no risk of undue influence in this process could ever occur.  

That being said, I don’t ‑‑ I don’t know ‑‑ there is no evidence that it did occur, but there are emails that you referenced that we are looking at and asking questions about.

Chairman Boustany.  And I would hope that if you do find evidence in your review that there was undue influence trying ‑‑ you know, by anyone at the IRS trying to influence that process, that you would share that with us promptly.

Mr. Werfel.  Absolutely.  I have two ‑‑ I mentioned this a couple of times.  It is worth reiterating.  I have two very critical focus points to what I think is most important for me to be doing right now.

One is make I am getting all the facts to the relevant parties seeking those facts, including your committee and other committees, and two, fixing the problems within the Exempt Organizations Unit, and we have ‑‑ we are off to an extremely strong start in doing so.

Chairman Boustany.  Thank you.  Mr. Lewis. 

Mr. Lewis.  Thank you very much, Mr. Chairman, for yielding.  Thank you, Mr. Commissioner, for being here.  Let me just ask you, have there been any findings to date that the processing of tax-exemption applications was politically motivated? 

Mr. Werfel.  No, I’m not aware of any finding like that.

Mr. Lewis.  Have there been any findings that the processing of tax-exempt applications was influenced by anyone outside the IRS? 

Mr. Werfel.  No, I am not aware of any evidence of that.

Mr. Lewis.  You don’t have any proof, you don’t have any ‑‑

Mr. Werfel.  No.

Mr. Lewis.  Any knowledge of anything like that? 

Mr. Werfel.  I do not.

Mr. Lewis.  Based on your review, were organizations that represented both sides of the political spectrum singled out for additional review? 

Mr. Werfel.  Yes.  There were ‑‑ there was what I like to call diversity across the political spectrum at various stages of the process, diversity in the Be‑on‑the‑Lookout list, diversity in the type of agencies that received unnecessary questions.  There was activities across a political spectrum.

Mr. Lewis.  Now, Mr. Commissioner, it is my understanding that the IRS Inspector General released a report yesterday saying that the year 2012 enforcement collection was down by $5 billion.  That is 9 percent.  Could you please explain how budget cuts have affected the IRS operations, what effect has the sequester had on the ability to collect revenue and provide taxpayer service? 

Mr. Werfel.  It has been significant.  We are down from fiscal year 2010 to the present roughly a billion dollars in budget authority.  Our staffing is down by 8,000, or 9 percent staffing reduction, and that has an impact.  The IG report that was issued yesterday is a manifestation that these budget cuts have consequences.  Those consequences include less people on the job doing debt collection, doing enforcement, and we are down actually $7 billion in revenue from enforcement between 2010 and 2012, and it also impacts our ability to serve the taxpayer. 

We don’t have as many people on the phones answering questions, and therefore, our metrics, in terms of ensuring that we are serving taxpayers and getting their questions answered are down.  Things like our taxpayer assistance centers have reduced hours and some of them are closed.  So, across the board, our budget cuts are having an impact.

Now, we are doing everything we can to work effectively and efficiently within them, and we are cutting costs where we can.  We have a 68 percent cut in our travel training, 45 percent cut in other travel.  We have cut our printing by 30 percent.  We have cut professional and technical services by 25 percent.  So we are doing what we can to stem the impact of these budget cuts, but the reality is they are taking a toll on our mission‑critical operations.

Mr. Lewis.  Mr. Chairman, last question.  Let me just ask you, Mr. Commissioner, since your 30‑day report, new leadership has been installed at all five levels of management responsible for Exempt Organizations, including top IRS leadership.  As a result of your actions, what improvement have you seen in the agency? 

Mr. Werfel.  I think there has been significant improvement, and it is a blend.  I mean, I myself, I brought some expertise to the table.  I brought in two individuals in particular from outside the IRS that are longstanding civil servants with public sector expertise.  What I did that I think was very important is I brought in expertise from other parts of IRS, like Heather Maloy who is the head of our Large Business and International Division and was the Acting Deputy Commissioner for Services and Enforcement, and she has been overseeing and working with Michael Julianelle, who is now the acting TE/GE Commissioner, and Ken Corbin.  All of these folks have IRS expertise from elsewhere.  They are working closely with the EO Determinations Unit, as I said in my statement.  There is a dedicated team of people in the EO Determinations office that are working really hard, and the changes are ‑‑ it is soup‑to‑nuts.  I mean, we really are reengineering the process.  This is an unfortunate situation, and in my 30‑day report and today I will reiterate, there is some very serious concerning findings in that TIGTA report that need to be corrected.  But there are some, I think, exciting changes that are starting to take hold within EO.

For example, the self‑certification process that we put in place.  We now have a process where a taxpayer can get a quick streamlined (c)(4) approval just by certifying to certain commitments in terms of not spending a certain amount of their resources on political activity, and we have had 36 applicants that were on this backlog for a long time and all they had to do was come in, sign the certification, and they were good to go with their (c)(4) approval. 

That is the type of change and reform that I think is going to help us manage our backlog going forward, and I can go on and on, but there are very specific changes, both to improve our safeguards, our controls and our checks and balances, and also to improve the customer, the taxpayer’s experience by giving them streamlined options, a bigger voice in this process, and the ability to manage that process through the IRS more effectively.

Mr. Lewis.  Thank you.

Mr. Werfel.  It has been a very busy few months.

Mr. Lewis.  Thank you very much, Mr. Commissioner.  I yield back. 

Chairman Boustany.  I thank the gentleman. 

Ms. Black. 

Mrs. Black.  Thank you, Mr. Chairman. 

Mr. Werfel, TIGTA reported that in addition to inappropriately screening applicants for tax exempt status that the IRS also took additional steps of requesting donor information.

Mr. Werfel.  Yes.

Mrs. Black.  This is particularly dangerous because confidential donor names, if released through the application process, would be subject to disclosure.  So, despite assurances that the donor lists were destroyed, this committee’s investigation has found that the sensitive donor information remains in the IRS files for these groups, putting these individuals at risk for even further targeting. 

Mr. Werfel, can you assure us right now that these donor lists are not being used to target donors? 

Mr. Werfel.  Let me answer that question in two parts.  One, I just learned last night about the potential presence of these donor lists which were intended to be destroyed, and I am not exactly sure yet why the media is reporting, or there was a press release, I think.  I think we ‑‑ this committee and my team, need to get together to understand exactly why this committee believes that those donor lists were not destroyed as intended, because they were supposed to be destroyed in the August 2012 timeframe.  If they have not been, if you have evidence that they have not been, then we need to ‑‑ because it may be, for example, that we gave you a case file before August 2012 and that you found it in there before we put our destruction order in.  There may be some other explanation, or we may have missed it, and if we did, we need to figure out why we missed it and make sure it gets destroyed.

Your second question.  Absolutely my commitment.  I mean, one of the absolute fundamental directions that I have provided and my team is operating on is there is no longer in any way, shape, or form is it acceptable to use a label or a name in order to screen an applicant for additional scrutiny.  It has to be based on activity.  It absolutely has to be based on activity, and we are doing everything in our power to make that as clear as possible, to put it into our written guidance and instructions, to have on‑site review of managers over that fundamental principle, because that is exactly what the TIGTA report found in May, that we were using labels or names to drive decisions in terms of whether a taxpayer received extra scrutiny.  That policy is no longer in place at the IRS, and we are doing everything in our power to make sure that it is abided by.

Chairman Boustany.  If the gentleman would yield.  It is my understanding from staff that those case files were in recent submissions from the IRS to our committee.

Mr. Werfel.  And I just don’t know the time ‑‑ in other words, what I want to make sure, and again, I am just learning this information last night.  One of the possibilities that it could be is that you are reviewing a case file that went over before our destruction order went in or maybe not.  Maybe there was a ‑‑ there was an intent to destroy all of those donor lists that were obtained and should not have been obtained, and for whatever reason, a donor list did not get destroyed, then I need to do two things.  One, make sure that it is destroyed, and two, figure out what went wrong in our process that it slipped through, and I commit to doing both those things.

Chairman Boustany.  Thank you.

Mrs. Black.  Let me now go to ‑‑ staying on this topic of donor lists.  I remind you of a statement made by your predecessor, the Acting Commission Mr. Miller, at a committee’s hearing right here in May.  And Mr. Miller tried to dismiss these requests as innocent mistakes, and later on went so far as to say, and I quote, More than half of those were not Tea Party cases that got these donor list requests, by the way, end quote. 

That answer was misleading, and the committee’s investigation has now established that 24 out of 27 groups asked for donor information were right leaning.  That is right, it was an overwhelming majority, 89 percent of all groups that appropriately asked for donor names were right‑leaning groups.  Your own report indicates that the IRS has not been forthcoming or accurate in its response to Congress about targeting. 

Are you looking at who is responsible for briefing Mr. Miller on these facts, which appear to be intended to mislead, and can you tell us who would have told Mr. Miller to say this? 

Mr. Werfel.  A couple of things.  First of all, I think, again, this may be an area where my staff and your staff can get together on the numbers, because we have different numbers than you have.  So we just need to come together, cooperate in a collaborative way and figure out and make sure that we have ‑‑ maybe your numbers are right, maybe our numbers are right, but I am just pointing it out as a potential discrepancy.

To answer your other question.  Again, my focus point is making sure that all the facts are put on the table for the appropriate committees and processes to review.  So, all of the information that you requested and you just suggested needs to be investigated, I would agree.  I want to investigate every single element of the IG report and make sure that we understand root cause, what happened, who needs to be held accountable, what we need to do to fix it, and therefore, we are working very closely with the Inspector General, providing all the documents that we are providing to you to them, in fact, flagging some of them in saying this is one that you may want to look into.  They are conducting interviews with employees in conjunction with the Justice Department to get to the bottom of this issue, and I am absolutely committed to making sure the IG, the Justice Department, this committee, and other committees have access to IRS employees that you want to interview, access to all the documents that you are requesting, and together we can have an approach that gets to the bottom of these questions, and as important, positions the IRS to be successful on all the reforms I have outlined today.

Mrs. Black.  Thank you, Mr. Chairman.  I yield back.

Chairman Boustany.  I thank the gentlelady. 

Mr. Davis, you are recognized. 

Mr. Davis.  Thank you very much, Mr. Chairman, and let me thank you for holding the hearing.  And I thank you, Mr. Werfel, for being with us to testify this afternoon. 

Could you walk us through an application, say, when a person submits an application for a 501(c)(3) or (c)(4) approval? 

Mr. Werfel.  I can.  So, what happens is we get the application in and then the first person at the IRS to touch it would be what we call a screener.  Okay.  The application is Form 1024, and you can pull it down off the IRS website and take a look at it.  The Form 1024 has two parts.  I think this is important. 

Part 1 deals with the identity of the applicant, information about who they are, their name, as an example.  And part 2 is a description of their activity, what activity are they planning to engage in or will engage in as a 501(c)(4). 

Now, as a backdrop, I think it is important to note that under the law, they don’t have to come in to apply to be a 501(c)(4).  They can be a 501(c)(4) and just file a return at the end of the year that says that they were a 501(c)(4), but there is an option to come in and get an application, so this is at the taxpayer’s option to come in and get this approval.

Now, what happens is the screener takes a look at it, and one of the important points that exists today, that is absolutely critical, is this screener is reviewing it without regards to any of the identity information in part 1.  They only look at part 1 for completeness, and there are very specific instructions now to the screeners that that is the only thing they should be looking at part 1 for, just is it complete. 

Then they look to part 2 and, completely divorced and separate from anything that was in part 1, they make an assessment about the activity.  And in looking at it, they may determine right off the bat, and many times they do, that there is no political activity that is anticipated here or it is very de minimis, and they will, what we call, close it in merit.  They will approve it without any further development, and that happens, and it happens often. 

They may say that ‑‑ they may mark it for what is called intermediate processing where they don’t have a significant number of concerns but there is some missing pieces to the application, some missing content, they just want to get confirmation, so they will mark it as intermediate, or they have questions.  And it is going to be a more fuller review, and we call that full development.  They look at the activities and they see things in the activity description that the applicant has provided that raise potential questions that there may be, for example, significant political activity that goes beyond what is allowed in the Tax Code and relevant Treasury and IRS regulations.

So they will say, for example, let’s say they market full development.  Then it goes to a manager, and a manager will assign the cases they receive to an agent to start working the file.  So if it is a full development case, they will assign it to an agent and say ‑‑ here is a full development case.  Please look at it and work through.  So one of the things that would happen is the agency ‑‑ the agent at this point in time would determine, well, because there is some questions there, I am going to ask the taxpayer what they meant by certain things so we can get a handle on the nature of how much political activity they are going to be involved in, because that is what the law requires. 

We have to figure out not the type of political activity.  It doesn’t matter what the name of the party is or what they are espousing.  It is — are they spending a certain level of their resources on political campaign intervention, and so they will ask the taxpayer a question. 

Now, under our new process, that agent cannot go ask questions of the taxpayer without a manager reviewing those questions and making sure that the appropriate form and content. This is one of the reforms we have made based on the findings in the TIGTA report that we were asking unnecessary and burdensome questions. 

So now we have specific instructions, new training for our managers and staff to say this is the appropriate scope of a question you can ask.  And we are also developing right now a process where we are going to put together standardized questions.  These are the questions that you ask.  There is no creativity here.  There is a standard template.  You, this committee, will get to understand what that standard template is so you can give us feedback as an example in terms of appropriate form and content, and that will take some of the subjectivity out of it. 

Based on the answers we get back from the taxpayer in terms of their  response to those questions, we can then make an assessment.  We may make an assessment of this all makes sense, now that they have clarified, it looks like there is a relatively limited amount of political activity, let’s approve it; or they can say this raises more questions.  I am going to go back to the taxpayer again, and if I do, again, the manager has to approve the questions, or you could get a sufficient amount of information now to say this looks like a denial, and asking the taxpayer the question, they reveal to us that there is going to be a substantial amount of political activity, political campaign intervention that this applicant is going to engage in.  So I am going to propose a denial.  Even at that point in time, after all that, you still haven’t denied.  What you have done is sent another letter to the taxpayer saying, based on all this information, I believe there is a denial that is pending. 

And then the taxpayer has an opportunity to respond again and even seek a meeting with that agent and the agent’s manager, and if it can’t be resolved at that point, then a final denial letter is issued, and even then, the taxpayer still has another recourse, which they can go to the IRS Appeals Division and appeal that process. 

So that is the process in a nutshell, and the critical things that we have trained on, again, is in that part 1, part 2 distinction, very clear that when you are screening the applicant, you only look at part 2 to determine activity in terms of whether the case should be approved or further developed, and the other key change is before we ask taxpayer questions to confirm, we get managers to review those questions.  We have retrained the managers in terms of what the appropriate tone and content of questions are, and we are working towards standardized questions to take any subjectivity out of it. 

That is the process in a nutshell, and I have tried to amplify where we have made some improvements. 

Mr. Davis.  Thank you very much.  Thank you, Mr. Chairman. 

Chairman Boustany.  I thank the gentleman.  Ms. Jenkins. 

Ms. Jenkins.  Thank you, Mr. Chairman.  Thank you for holding this hearing and thank you for being here. 

Let’s just pick up where you left off, please, because in your 30‑day report you said that you were no longer going to flag organizations based on name alone.

Mr. Werfel.  Correct.

Ms. Jenkins.  And you assured us organizations were going to be judged on the contents of their applications where you just explained.

Mr. Werfel.  Correct.

Ms. Jenkins.  And even in your written testimony, you talk about the IRS’ new enhanced training, which you just went through again.  Yet committee interviews with IRS employees indicate that instructions given by managers regarding the screening of Tea Party groups hasn’t changed.  In fact, a Cincinnati screener told the committee that his manager’s instructions were to send Tea Party applications to a secondary screening, and I just can’t realize how you can explain this because you send out memo after memo but it appears that the policy and substance hasn’t changed at all. 

So I guess what I would like to hear is what have you done beyond sending a memo to ensure that the manager’s directives are not leading to additional targeting because it certainly doesn’t sound like the enhanced training is working at all.

Mr. Werfel.  Let me respond to a couple of points.  First, with regard to the transcript that you are referencing.  First, I only got to see an excerpt of that transcript.  I haven’t seen the full transcript, and I think if I could see the full transcripts, I could get a better sense of the employee’s questions, issues, potential confusion, but not having seen the full transcript it is challenging. 

When I saw a broader transcript excerpt, I was able to detect at least ‑‑ and again, I want to be careful about reaching full conclusions without the full transcript, that I think what the employee was indicating that in the absence of the BOLO list and out of an abundance of caution, I am pushing things to my manager as things settle out and I figure out what I am supposed to do, which is different than an ongoing, you know, use of political labels as part of this systemic program.  It is more of, as I looked at the broader excerpt, more of as we transition from BOLO list to non‑BOLO list, I am seeking help from my manager on a broader set of cases to make sure that everything is good. 

Now, what we did, as soon as we saw that, that transcript excerpt, just out of an abundance of caution and not having seen the whole transcript, was I immediately had the manager again issue another memo clarifying, just to make sure everyone is clear.  I had them pull the entire team together, go over the memo, make sure everyone understood the exact requirement here that names, labels are no longer relevant and that you do not need to send something to your manager simply because you see a name on a file.  That is not appropriate.  You send something to your manager if you see activity on the file that raises questions, if you have a question for your manager, but the name is irrelevant.  The only thing you need to know about the name is, is the name completed and do you have that type of information. 

And I have asked Ken Corbin, the director of this organization, to be very focused on this, and he has reported back to me that he continuously reemphasizes with the team, he even told me that he will sit side by side with team members on the floor in Cincinnati as they are going through this to make sure they understand, in a post‑BOLO environment, exactly what to do.

I would love to see that full transcript, come back and answer more questions about it.  In the interim, I want to assure you that we take any such concern or potential confusion that an employee has seriously, and I have reemphasized a number of times through written, verbal and training instructions to the staff that the name has to be irrelevant.  The only basis by which to move an application for further scrutiny or further review is activity and activity alone.

Ms. Jenkins.  Well, sometimes that may not be enough.  There might need to be a consequence for a mistake like this because I have the transcript, but I am sure you have read all of the relevant parts because they are asked, currently, today, and this is well past the date that we were assured this was no longer going on, that was back in June, this is as of August 1st, asking currently, “If today a Tea Party case were to come out, come before you, would you treat a Tea Party group as a political advocacy case even if there was no evidence of political activity on application; is that right?”  And the answer is, plain as day, “Based on my current manager’s direction, uh‑huh.” 

I don’t know how you can read that any other way, and I am just frustrated because it sounds like somebody made a mistake, no one is being held accountable, and when my constituents make a mistake on their tax return, there is a consequence, they get a penalty, they get an interest on top of a penalty, they get subsequent audits, their companies get audited, and yet this is the kind of shoddy workmanship that we see, and it is based on political targeting and it is just unacceptable.  I hope there will be a consequence. 

Mr. Werfel.  Well, let me ‑‑ I know we have a limited time, but let me just make this point.  That the entire framework that led to this confusion was identified in the TIGTA report, and we are going through a process to ensure accountability for those leaders and managers who were responsible for letting this emerge and not doing enough to prevent it and offer clarification.

As I said many times, from where we are right now, compared to the day the TIGTA report was issued, every single leader in the leadership chain, from the Commissioner down to the lowest level senior executive in this chain of the IRS, is now replaced with a different leader, and that is part of the process.  And we still have more work to do, but the notion that there is no accountability is not correct.  There is, I think, significant accountability under way and in process to make sure that mistakes that were made, poor judgment that was happening, is dealt with. 

With respect to this individual employee, again, I really feel like I need the full transcript to understand the issue and the context, but I can assure you we are doing everything we can to make sure these instructions are clear. 

Chairman Boustany.  Mr. Marchant. 

Mr. Marchant.  Thank you, Mr. Chairman.  This administration brought you in to get to the bottom of this, to find out if there was politically motivated actions by the IRS and to take corrective action.  You agree with that? 

Mr. Werfel.  Yes.  I was brought in to help facilitate a process to make sure that all the facts were uncovered and that I correct the problems within this area of the IRS.

Mr. Marchant.  How is it possible that your investigation so far, which had to have included reviewing the emails of Lois Lerner and the emails that you have submitted to the committee, how is it possible that you have reached the conclusion that there was no political motivation? 

Mr. Werfel.  I haven’t reached that conclusion.  What I have said, and let me clarify, and I appreciate the question.  The conclusion that I have reached is that there is more work to be done. We are going through a process to turn over every document to this committee, but you know, we have more documents in process, and I committed to the Chairman earlier to get those documents.  Where I see things right now is when I see a problem or an issue with a document, and there is certainly questions that are raised in the documents that we have provided, I immediately provide them and flag them for the Inspector General who was working with the Justice Department to further review and investigate.

Where we are right now on September 18th is we have a lot of different facts out there, and they need to be synthesized, and they have not yet been synthesized yet.  I think Mr. Lewis pointed to findings in evidence of different types of political groups receiving extra scrutiny, and so that has to be factored in and balanced against some of these other questions.

Mr. Marchant.  Reclaiming my time, Mr. Werfel.  After everything that we have seen over the last month, it really now appears that there was really more political activity going on in the IRS than among the groups that the IRS was investigating.  What is the current employment status of Lois Lerner? 

Mr. Werfel.  She is technically still employed by the IRS.

Mr. Marchant.  Do you have any precedent in the history of the IRS where a high ranking IRS official took the Fifth Amendment before a standing committee of the House of Representatives and remained in employment? 

Mr. Werfel.  I am not aware of that precedent.  I would have to go back and ask.

Mr. Marchant.  This is why the people back in my district have lost confidence in this process, have lost confidence in this investigation and really are becoming very suspicious about the fact whether we will really ever get to the bottom of this. 

Do you ‑‑ what do you intend to do, as all of these emails come forward, as you see growing evidence, you said you have asked the Justice Department to step in.  Have you asked the Justice Department to come in? 

Mr. Werfel.  When I arrived at the IRS back in late May, already in place was a joint TIGTA‑Justice Department investigation, and on my first or second day there I met with the Inspector General and he explained the rules.  He explained to me how the investigation is ‑‑ what my role was, what his role was, and again, I want to do everything by the book within appropriate legal requirements and follow all the relevant laws and regulations.  I will not do anything outside of the strict laws, regulations, and processes that govern these investigations.  But within those lines, I am being as absolutely aggressive as possible in making sure that all the facts and all the relevant information gets into these parties.

I have, for example, and this is in my testimony, 150 people, many of them attorneys, at the IRS working day and night to get these nearly 400,000 pages of documents up to you so you can do exactly what you should be doing, which is raising questions about it.

Mr. Marchant.  The other issue, when I go back home every weekend, and I talk to the groups in my district that are still waiting, some of them over a year, still waiting for just a simple yes or no, and the assurance has been given by you, your predecessor, and by the IRS that that process had been streamlined, that it has been ‑‑ that it is getting attention, these people back home deserve an answer.

Mr. Werfel.  They do, I agree. 

Mr. Marchant.  Please follow through up on this. 

Mr. Werfel.  I will.  It pains me, too, and I assure you we are doing everything we can to re-look at this process to make sure that it moves more quickly and swiftly.  It is too slow right now, I absolutely agree.  But the reforms that we put in place ‑‑ and I am happy to spend more time with you or your staff detailing exactly how we are looking at reengineering these processes to make these improvements ‑‑ we are going to do everything in our power to make sure that they take effect and take effect quickly. 

Mr. Marchant.  Thank you. 

Chairman Boustany.  Thank the gentleman. 

Before I go to Mr. Rangel, Mr. Werfel, could you clarify for us right now what is the complete (c)(3) and (c)(4) backlog?  Do you have those numbers? 

Mr. Werfel.  I do.  The overall backlog combined (c)(3), (c)(4) is 65,213 applications as of August 23, 2013. 

Chairman Boustany.  That is a combined number? 

Mr. Werfel.  That is combined for (c)(3) and (c)(4), yeah. 

Chairman Boustany.  Okay.  And maybe you can get us the split. 

Mr. Werfel.  Yes.  I don’t have the exact split.  It is mostly (c)(3).

Chairman Boustany.  Okay. 

Mr. Werfel.  And that is only because we get many more (c)(3) received.  So, for example, I do know in the chart I have here that so far year to date we have received 58,000, roughly, (c)(3) applications.  We have received roughly 13,000 (c)(4) applications.  So you can do some rough percentages to get a sense. 

Chairman Boustany.  Yeah.  And one last question on that.  How many of those are in arrears by a year or more? 

Mr. Werfel.  That I would have to get back to you on in terms of how long. 

Chairman Boustany.  Okay, if you could do that.  We want to make sure the process is not continuing. 

Mr. Werfel.  It is ‑‑ no.  Yeah, absolutely.  You should absolutely have those numbers, and that is what I was just telling to Congressman Marchant, you know.  It is a process that needs fixing, and we are fixing it. 

Chairman Boustany.  Thank you. 

Mr. Rangel. 

Mr. Rangel.  Mr. Chairman, thank you so much for this courtesy, and let me thank you for your public service.  I know you have heard it before, but Republicans and Democrats truly believe that the integrity of the tax collection service, that fairness is so necessary if we are going to have the successes we have had in the past.  And so I want to make it clear that it is not so much whether or not we are dealing with the question of honesty and dishonesty, but even the perception that a taxpayer is not getting a fair shake is the paramount thing that we have to leave with. 

Now, I want to ask the question:  Do you see any reason why any political activities at all should enjoy tax exemption? 

Mr. Werfel.  Sir, that is a question that I don’t think it is my role as Acting IRS Commissioner to answer.  I have a responsibility to effect and implement the Tax Code and the appropriate Treasury regulations. 

Mr. Rangel.  Well, try to frame the question in one that you could answer, because you are an expert in tax law, and this tax‑writing committee, we know darn well you are supposed to enforce the regulations, but in addition to that you are supposed to give us advice as to how we can perfect and make the system better. 

Mr. Werfel.  Let me answer the question this way. 

Mr. Rangel.  Good. 

Mr. Werfel.  I think, you know, obviously the Tax Code says ‑‑ and I think this may be where you are leading ‑‑ the Tax Code indicates that a (c)(4) organization has to be exclusively in the business of social welfare.  In 1959, a Treasury regulation was issued that defined ‑‑

Mr. Rangel.  I know all of that. 

Mr. Werfel.  ‑‑ as primary.

Mr. Rangel.  I know all of that. 

Mr. Werfel.  Now, this ‑‑

Mr. Rangel.  I started from the beginning.  Do you think we should be involved in any tax‑exempt privileges for political activities? 

Mr. Werfel.  I don’t have an opinion on it.  I don’t have an opinion. 

Mr. Rangel.  Oh, my God.  As a tax expert do you think we need incentives for people to make contributions through the Tax Code? 

Mr. Werfel.  I am completely focused on administration and implementation of the Tax Code. 

Mr. Rangel.  Okay.  Well, it is my fault, because my intent is so clear that I have no reason to believe that you should not be able to answer it. 

But I want to move on and ask you, do you believe that the IRS had the authority to change the legislation to make it partially political activity?  Do you believe they had the constitutional authority to do that? 

Mr. Werfel.  It is a good question.  I think ‑‑

Mr. Rangel.  I don’t want a good question.  I am only asking what you think.  I am not asking you to be a constitutional scholar, but you are the Acting Commissioner. 

Mr. Werfel.  I will say this:  I think the transition from the word “exclusive” in the law to “primary” in the regulation raises questions, and it is for that reason, if you will allow me, one of the recommendations the IG had was to engage in a process to relook at that regulation, and we committed to doing that, and we started that process.  Treasury issues something called the priority guidance plan and issues what regulations we are going to be pursuing, and we put on that priority guidance plan, which was just issued, I think, in August, that we will investigate a regulatory process to relook at this question. 

Mr. Rangel.  I don’t know what “relook” means, but are there words there that you think that political activity should be included under the privilege of tax exemption? 

Mr. Werfel.  Basically what we are going to do is we are going to go out to the public, and we are going to have a public dialogue about this question of what the regulation should say.  Should it be more narrow towards exclusive?  Should it be more on the spectrum towards primary?  We are going to have a process. 

Mr. Rangel.  And to all of these questions, if someone asked your opinion, you would say it is up to the people in the street and Members of Congress? 

Mr. Werfel.  I would say that it was the Treasury ‑‑

Mr. Rangel.  You don’t think that it is proper for you to give a professional opinion about the existing Tax Code as it relates to tax preferences for political activities? 

Mr. Werfel.  I think the appropriate lead official for that is the Treasury Secretary, and I think my role is to advise him and others in the process on what is administrable in the IRS, what can we effectively administer within our resources and within our capacities.  That is what I think the role of the IRS Commissioner is. 

Mr. Rangel.  Thank you so much, Mr. Chairman. 

Chairman Boustany.  Thank you, Mr. Rangel. 

Mr. Paulsen. 

Mr. Paulsen.  Thank you, Mr. Chairman, also for holding the hearing. 

Mr. Werfel, keeping taxpayer information secure is vital to protect taxpayer privacy, deter fraud and identity theft, but it is also the law.  Leaks of taxpayer information are referred to TIGTA, of course, which investigates each case and then determines whether to refer that case to the Department of Justice for prosecution. 

Now, back in August you assured the committee that the Obamacare data hub would be very secure and securely conveying taxpayer information.  You said the IRS already transmits taxpayer data, and of 8 million transactions that happened in 2012, there were only 24 improper disclosures of taxpayer information.  Now, committee staff spoke with TIGTA to verify the number that you provided, the 24 number, and TIGTA says that in 2012 there were actually not 24, but 200 different leaks of taxpayer information reported to TIGTA. 

Where did you get your information on the 24 number?  Because even TIGTA does not know where that number came from.  In fact, just during the course of the last few months, my understanding is that the committee has made you aware of at least eight unauthorized disclosures of confidential taxpayer information.  So how can groups such as the National Organization for Marriage, of course, which has come up in this hearing after hearing here in this part of the investigation, whose donor information was actually leaked, have any confidence that the IRS is going to safeguard that confidential information from public disclosure? 

Mr. Werfel.  Well, first of all, separating out any specific taxpayer to make sure that I am clear of any 6103 issues and lifting the question up more generally, let me start with the data discrepancy.  I would love to meet with TIGTA and understand, make sure that we are making the same assumptions.  My numbers, I think, were reflecting any data breaches that might have happened by State and local governments that are receiving information, for example, on Medicaid.  They might have a broader definition of what they are talking about in terms of capturing the 200 versus the 28.  So I will work with TIGTA, and we will get back to you on a particular reconciliation of those numbers. 

The process is extremely robust, but not absolutely risk free, and we are ‑‑ again, we are required under the law ‑‑  again, this goes to the IRS’s responsibility to administer the Tax Code ‑‑ to furnish this information to effectively run programs such as Medicaid and now the Affordable Care Act.  And we have a very robust plan and action that we go through to validate the security of that data as it goes, as it leaves the IRS, and, in the case of the Affordable Care Act, as it travels through HHS into the exchanges. 

And as we get closer to October 1st, we are working extremely diligently with HHS, with the exchanges to make sure that all those protocols around IT and data security are in place, and they are extremely robust.  They are not absolutely risk free, unfortunately.  I wish they could be, because any breach of sensitive taxpayer information is enormously troubling and should have consequences.  Sometimes it is inadvertent, and the consequences are on the IRS to relook at our controls and safeguards and update them.  Sometimes it is advertent, and in those cases we refer those to the Justice Department. 

Mr. Paulsen.  Let me ask you another question.  To dispel any accusations of wrongdoing, your agency released the name of dozens of different targeted groups that have been since approved.  However, our investigation has found out that of these groups, 83 percent of those that were flagged for the IRS surveillance program described by Chairman Boustany earlier just happened to be right‑leaning, and now you have told us that the surveillance program has been suspended for these organizations.  So the suspension of the program as well as the numbers certainly seem to suggest that extra scrutiny was somehow inappropriate in the first place.  So, Mr. Werfel, were agents under instruction to flag right‑leaning groups for surveillance? 

Mr. Werfel.  I am not aware of any such evidence of that.  The reason why we suspended it was out of an abundance of caution.  I sent a new leadership team in there, and I said, I want you to make sure that you are comfortable that not only is the process as efficient as it needs to be, not only is it efficient in meeting the demands of the law, but that all the appropriate safeguards are in place.  Whether it was mentioned in the TIGTA report or not, I wanted a comprehensive review of all appropriate safeguards. 

So out of an abundance of caution, not because there was particular evidence, we suspended activities until my new leadership team in there could get comfortable that all the process and safeguards are effective, and it is not going to be forever.  We are working very hard to make sure that those confirmations can be done quickly so we can restart this process, because exams is a critical part of what we do in order to enforce the Tax Code. 

Mr. Paulsen.  Are you aware or did anyone inappropriately influence ‑‑ inappropriately influence the selection of groups, these groups, for surveillance? 

Mr. Werfel.  Again, I struggle with the word “surveillance.”  In terms of referral to the ROO, if that is what you mean, I am not aware of it. 

Mr. Paulsen.  Let me just ask you this, too:  Did Lois Lerner have a role in the way that these groups were flagged or processed? 

Mr. Werfel.  Off the top of my head, I don’t know that she did specifically, but I will say this:  The Director of the Exempt Organization Unit has responsibility for overseeing the operations.  This is one of the operations.  I could talk to you about what I think are the appropriate types of overview that that individual should have, and making sure ‑‑ doing what I am doing:  making sure we have the right leadership team in place, putting in the right processes, the right safeguards.  But to the extent it ever would bleed into a specific direction that this entity that the process said should be audited, going in and changing that conclusion, to me that would breach inappropriate behavior. 

Mr. Paulsen.  Mr. Werfel, I know we are running out of time, but you mentioned earlier that Lois Lerner is still on paid leave.  How long do you expect that she will be on paid leave?  Have you asked her to resign? 

Mr. Werfel.  So let me do two things with that question.  First of all, let me articulate that under the constraints of the Privacy Act, I can give an employee’s status, but I can’t go beyond that.  But what I can do is lift up out of Ms. Lerner and talk generally about our process, and what our process is is that I committed to running a process to ensure that there is accountability for any individual who can no longer hold the public trust because of certain responsibilities they had in the findings of the TIGTA report.  That process involves ‑‑ I put together an Accountability Review Board, which is looking at all the documents, all the issues, and understanding what different managers or leaders, what responsibilities they had.  That process is going through and looking at all those documents and doing those inquiries.  It takes time.  I am as frustrated as anyone.  I want the process to go quick, but as we described, there is 400,000 pages of documents, so it is not something that can happen overnight. 

What I will say is this:  We are making progress.  We are closer to the finish line than we are the starting line in terms of running through this process, and I suspect in the near term we will start seeing conclusions coming out of these processes. 

Mr. Paulsen.  Mr. Chairman, as you know, I mean, Lois Lerner is the one person who knows the most, who can answer the most, and who has refused to testify. 

Chairman Boustany.  Thank the gentleman. 

Mr. Kelly. 

Mr. Kelly.  Thank you, Chairman.  And, Mr. Werfel, thanks for being here. 

Can you just kind of describe for us what does “public trust” mean?  Define it for me. 

Mr. Werfel.  It is something I have given a lot of thought about actually.  I am a 16‑year civil servant.  Public trust involves making sure that we are acting consistent with the principles of the mission of our agency, principles of impartiality; that we are meeting our various ethics responsibilities; that we are following the rule of law.  And I think my team would tell you this, and it dates back to the course of my career ‑‑ I am very stringent around the rule of law. 

Mr. Kelly.  And I understand that.  I understand that. 

But then let’s move on.  Now, Ms. Lerner, how long has she been on leave with pay? 

Mr. Werfel.  Again, I wish I could answer that question for you.  I potentially could answer that question in a different setting, but because of the Privacy Act, I can’t get into the specifics of a given employee’s personnel process. 

Mr. Kelly.  Okay.  Well, you told this group that Ms. Lerner was not going to be involved.  In fact, it goes down to this.  It says that the ‑‑ you told the committee that Ms. Lerner is on administrative leave, still being paid by taxpayers; she does not have access to any IRS systems, not even her email; and that she has no functional control over EO Division.  In fact, you even hired a new Acting Director of Exempt Organizations.  Yet after the TIGTA report and this committee’s investigation, taxpayers are still getting letters signed by Ms. Lerner.  Now, this letter I have here is dated August the 7th, 2013.  That is why I asked, when was she put on administrative leave?  When did she plead the Fifth?  And if that is the case, why is she still sending out information for response? 

Mr. Werfel.  I am not aware of the issue that you are raising.  I have never seen the document that you are holding in your hand, and if you provide it to me ‑‑

Mr. Kelly.  Well, it is when we got the new folks, so ‑‑ and I know this is in the thousands ‑‑

Mr. Werfel.  I will look into it and get back to you. 

Mr. Kelly.  And I have got to tell you, please don’t take this personally, but I have never seen anybody come here and answer about how many new committees, new panels that you are going to get to and you are going to hold, again, accountability.  Who has been held accountable for anything that has happened so far in the IRS? 

Mr. Werfel.  Well ‑‑

Mr. Kelly.  And this is not ‑‑ I mean, some people describe it as a phony scandal.  It is not a phony scandal.  The only thing I see phony so far is the investigation of it.  Tell me, where exactly are we on this? 

Mr. Werfel.  Let me answer ‑‑

Mr. Kelly.  The short version.  Give me the short version. 

Mr. Werfel.  I will give you the short version as best I can.  I have said it earlier.  All five levels of leadership from the Commissioner down to the SES in charge are no longer in their jobs. 

Mr. Kelly.  I understand that. 

Mr. Werfel.  Okay, that is one. 

Mr. Kelly.  But they are still working somewhere.

Mr. Werfel.  Two, in order to hold ‑‑ in order to hold ‑‑

Mr. Kelly.  They are still working somewhere.  They are still being paid by taxpayers.  Yes or no? 

Mr. Werfel.  Not in all cases. 

Mr. Kelly.  Not in all cases? 

Mr. Werfel.  Yeah.  In order to hold an individual accountable in the Federal Government, there is a process.  It is one that is driven by congressional law ‑‑

Mr. Kelly.  Do you know what, Mr. Werfel?  I want you to understand something.  Do you know the American public has heard enough of this, this Washington spin about how people are held accountable.  Accountability in Washington is put you into another agency and go to work there.  It is never holding anybody accountable for wrongdoing. 

You come here today.  We are asking you very specific questions.  The first time you came here, it was too early to ask you.  I understand.  This is a great thing you have put together for us, this is great.  On page 12 you say, all the various fact‑finding efforts under way will have a direct bearing on the decisions we will make about additional accountability measures.  Consistent with our approach to date, if there is sufficient evidence to conclude that an individual can no longer hold a position of public trust within the IRS, we will take appropriate personnel action. 

What is appropriate personnel action?  Is it being transferred to another agency, or is it actually holding somebody accountable to the American people the way they would be held accountable if they gave false information or they did something that the IRS didn’t find was in accordance with what the taxpayer is supposed to do?  See, that is where the disconnect is here. 

Mr. Werfel.  Congressman, there are many situations in government where people ‑‑ where an agency moves to dismiss or terminate an employee. 

Mr. Kelly.  I am not talking about many agencies.  I am talking about wrongdoing.  There is overwhelming evidence right now, and if we are saying, yeah, we are just not sure yet?  We are not sure when 83 percent of these groups were right‑leaning, when 94 percent of these groups that are being selected for surveillance are right‑leaning?  The audit selection statistics arising from EO surveillance program are the most alarming.  One hundred percent of the groups that were ultimately selected for full‑blown audits were right‑leaning, and we are waiting to see if we can connect the dots to see if there was possibly anything that could have linked this activity at the IRS to wrongdoing.  

This is appalling that we even have to have this meeting.  And I am being told that Lois Lerner can take the Fifth.  Lois Lerner is still signing letters on IRS stationery.  There is a huge question there.  You know, you are in charge of a 97,000‑person agency that has about a $12 billion budget.  This is incredible.  I understand how tough it would be ‑‑

Mr. Crowley.  Mr. Chairman.

Mr. Kelly.  ‑‑ but don’t you think the American people ‑‑

Mr. Crowley.  Mr. Chairman.

Mr. Kelly.  ‑‑ deserve an answer sometime ‑‑

Mr. Crowley.  Mr. Chairman.

Mr. Kelly.  ‑‑ about people being held accountable for what they did was wrong?  They need to be just not sanctioned, they need to be put in jail for the wrongdoing that they did. 

I yield back, Mr. Chairman. 

Chairman Boustany.  Thank the gentleman. 

Mr. Crowley. 

Mr. Crowley.  Thank you, Mr. Chairman. 

Just a quick follow‑up, Mr. Werfel.  Are you constrained by law in taking action against ‑‑ yes or no ‑‑

Mr. Werfel.  Absolutely. 

Mr. Crowley.  ‑‑ against Ms. Lerner?  You are constrained by the law? 

Mr. Werfel.  In general I am constrained by ‑‑ and I don’t know if I like the word “constrained.”  There is a process, it is a legal process, put in place to protect Federal employees.

Mr. Crowley.  Can you fire her today? 

Mr. Werfel.  I cannot fire any employee today without going through a very robust and thorough process that is set out in law and regulation. 

Mr. Crowley.  Mr. Werfel, maybe what we are suggesting is the gentleman might want to put a bill in to change the law as exists today.

Mr. Werfel.  As long as the law ‑‑

Mr. Kelly.  If the gentleman would yield, I already have.

Mr. Crowley.  No.  Well, then see it forward. 

Mr. Chairman, I have the time. 

And the gentleman has the ability as a Member of Congress to see that bill forward, but not to badger the gentleman at the time. 

I, by the way, would like to badger a little bit myself, so reclaiming my time.  Thank you for being here today, and thank you, Chairman Boustany, for holding the meeting ‑‑ the hearing, and Mr. Lewis as well. 

A few months ago this same subcommittee held a simple hearing on Tax‑Exempt Division at the IRS and hosted the woman we are speaking about right now, Ms. Lerner, as our witness.  At that hearing ‑‑ that hearing was held 2 days before that same witness Ms. Lerner informed the world through a planted question the IRS has been inappropriately targeting civic and public affairs groups seeking nonprofit exempt status.  I was especially angry at this disclosure as at that hearing I previously mentioned just 2 days before her planted confession, I directly asked about the issue of politicization at the IRS and was given a basic nonanswer. 

Months later and after several investigations, hearings, and lots of noise and unfounded accusations, we have been able to uncover a few important truths that I would like to go through. 

But what I will suggest is that maybe Ms. Lerner took the Fifth Amendment because of her attempt to mislead this Congress, this subcommittee, at that particular hearing, and 2 days later pled to that question.  Maybe that is why I believe she took the Fifth Amendment, and regardless to any other criminal investigation going on, it is a crime to mislead Congress.  It is a crime not to be truthful when asked a direct member from this committee and get a nonanswer or a false answer only 2 days later, to do it in a public setting. 

But let me just say the few important truths.  There was no political motivation in the selection of applications for review.  Both progressive and Tea Party groups received additional review.  There was absolutely no interference or coordination in this political targeting by anyone at the White House or Treasury.  No IRS agents have ever been cited or even been accused of forcing their own personal political ideology onto the process of granting nonprofit status.  In fact, the screening manager of tax exemption applications is a self‑identified conservative Republican, as well as the person who first reviewed and screened the applications to see if any of them could be approved. 

But America saw something else, something we see all too often in this Congress:  a double standard.  We saw and we heard it again today the outrage by my Republican colleagues that the Tea Party groups were targeted, but no similar outrage when progressive groups were targeted.  I was outraged, as many of my Democratic colleagues were outraged, when Tea Party groups were targeted, but I didn’t hear that same level of outrage when it was focused on progressive groups. 

While I am pleased you are here, Mr. Werfel, to give us a progress report, it is time for this committee to also demand honest answers from the Treasury’s inspector general as well and a complete report on this issue.  No American should be targeted, no American should be targeted for their political beliefs, whether conservative or progressive.  But this investigation into the abuses of Americans will not be settled until we hear from every party, and that means the time is now for our Republican colleagues to join us in demanding the answers from the IG. 

And speaking of continuing abuse of Americans, just a few minutes ago I was informed that my Republican colleagues released a bill to fund the government and include in the continuing resolution language that forces the U.S. government to prioritize its payments so that foreign banks and creditors will always be paid first before any American if our country defaults on its debt.  What this means in the real world is the Republicans that run the Congress today believe it is okay to bring our Nation to the point of default on its bills, and, if we go over the cliff, to mandate that Treasury pay foreign creditors and banks like the Bank of China before Social Security recipients, VA pensioners, Medicare recipients, doctors, or just about any other American. 

Mr. Werfel, I fear that if the Republicans’ Pay China First Act is enacted, Americans will see delays and possibly denials of their tax refund checks as their dollars will be diverted to pay foreign banks first.  Do you have any comment on that? 

Mr. Werfel.  Well, there are two issues there, I think:  government shutdown; there is if the debt limit is breached.  It all has extremely chaotic impacts on the government, obviously, but talking specifically about IRS, very chaotic impacts on the IRS.  And in essence in a shutdown situation, the entire ‑‑ most of the IRS footprint is shut down; not all of it, but most of it.  We can’t process taxes, we can’t enforce, we can’t collect debts.  There are so many things we can’t do that have a direct impact on our bottom line deficit.  So there is a certain irony there, but absolutely I am extremely concerned about the mission‑critical operations of the IRS, given the potential for a government shutdown. 

Mr. Crowley.  Thank you. 

Thank you, Mr. Chairman. 

Chairman Boustany.  Thank the gentleman. 

It is not the intent of the Republican side of the aisle to shut the government down, and we are hopeful that we will get to a solution on this.

Mr. Crowley.  Mr. Chairman.  Mr. Chairman. 

Chairman Boustany.  I now recognize ‑‑

Mr. Crowley.  I am only asking to have a clean debt relief bill before the House. 

Chairman Boustany.  We are recognizing Mr. Reed now. 

Mr. Reed.  Thank you, Mr. Chairman. 

And thank you, Mr. Werfel.  I am watching or listening to my good friend from New York Mr. Crowley demonstrate that I think Ms. Lerner ‑‑

Mr. Crowley.  Will the gentleman yield? 

Mr. Reed.  No, the gentleman will not yield.

Mr. Crowley.  Are we really good friends now after this?  Now, let us see after your testimony. 

Mr. Reed.  It sounds to me as if Ms. Lerner has very few friends left here on this Hill, and rightfully so from the testimony or the questioning that Mr. Crowley has asked of you and how she misled this subcommittee. 

So I want to focus in particular on Ms. Lerner and Ms. Lerner’s emails.  First and foremost, you said you have reviewed emails from Ms. Lerner.  How many email accounts did Ms. Lerner have? 

Mr. Werfel.  I am only aware of one within the IRS, but I do know that she also used a private email account as well.  So I don’t know if you are going to count that, but ‑‑

Mr. Reed.  Yeah, absolutely.

Mr. Werfel.  ‑‑ one email account within the IRS, and I do understand through the email discovery that she also used a personal email account. 

Mr. Reed.  She used her personal email account, that is correct.  And you have an obligation to be truthful to us, too, Mr. Werfel. 

Mr. Werfel.  Absolutely. 

Mr. Reed.  So I appreciate that, and I just advise you of your responsibility to us. 

I would like to ask you, we have some emails that I would like to go over with you that have been made privy to us, and display them, and ask your input on them.  I believe there is three emails in particular that I want to look at where ‑‑ and we can put it up on the display, the first one ‑‑ where Ms. Lerner is addressing an email to her subordinates, and you see in the email it says, “Tea Party matter very dangerous.”  Have you seen that email before.

Mr. Werfel.  I have. 

Mr. Reed.  And have you talked with anybody in regards to that email as to what that email was intended to mean? 

Mr. Werfel.  I did.  I asked questions.

Mr. Reed.  Who did you ask questions of? 

Mr. Werfel.  I asked questions of members of my leadership team.

Mr. Reed.  Who are those leadership members, names? 

Mr. Werfel.  Okay.  I have my Acting Deputy Commissioner, who is no longer the Acting Deputy, Heather Maloy.  I talked to Beth Tucker, who is the Deputy Commissioner for Operations Support.  I talked to Chris Sterner, who is Deputy Chief Counsel.  These are just various members of the leadership team. 

Mr. Reed.  Did you have any conversation with Ms. Lerner herself?

Mr. Werfel.  No. 

Mr. Reed.  Okay.  And when you ‑‑ and this is Ms. Lerner’s email account.  This is from her; this is no doubt coming from her email account, correct? 

Mr. Werfel.  That is my understanding, yes. 

Mr. Reed.  So what do you think Ms. Lerner meant when she said, “Tea Party matter very dangerous,” in particular “very dangerous”? 

Mr. Werfel.  I will say this:  I don’t know what she meant, but I was concerned when I saw the email, and it is for that reason that I flagged it for the IG and for the Accountability Review Board.

Mr. Reed.  Okay.  And let’s go to the second email, as we are going through time here.  This is another email that came from Ms. Lerner’s email account, and in that email it says, “It would be great if we can get there” ‑‑ “if we can get there without saying the only reason they don’t get a 3 is political activity,” I believe is the full reading of that.  And in particular I direct your attention to the statement, “It would be great if we can get there without saying the only reason they don’t get a 3 is political activity.” 

So I want to ask you a question, where is ‑‑ what does “get there” mean? 

Mr. Werfel.  Again, I don’t know. 

Mr. Reed.  This, again, is Ms. Lerner’s email, correct? 

Mr. Werfel.  I agree.  I agree it raises a question and a concern, and I think it would be helpful, for example, to talk to people that are on that email chain as well and see if they can help dissect what that means.  And it is for that reason that I provided emails like this to the inspector general, who is doing those very interviews, as is this committee.  And so my hope is that in interviewing the employees on that email chain, we can get a better sense of what she meant there.

Mr. Reed.  And do you think she was trying to say that somehow they were trying to approve or deny these applications? 

Mr. Werfel.  That is part of the challenge.  I just don’t know, taken out of context.  But, again, we produced these ‑‑ I just want to point out if I could, Congressman, in some ways this is part of the process working the way it was intended.  I made commitments that I would get all the ‑‑

Mr. Reed.  Mr. Werfel, reclaiming my time, reclaiming my time.  I mean, you have gone to great pains, and the opposition, the Members on the other side of the aisle, have gone to great pains to say that there is no political activity here, this is just something that was across the spectrum.  But when you see things like, “Tea Party is very dangerous,” “We need to get there some other way than for political activity,” clearly that shows, to me, some bias, and we will let the American people make that judgment.  So you are trying to say one thing, but this incriminating evidence leads me to believe there is something else going on there. 

Let’s go to the third email, if we could. 

Mr. Werfel.  Okay. 

Mr. Reed.  Are you familiar with this email between Ms. Lerner and some of her staff and other colleagues? 

Mr. Werfel.  Yes, I am. 

Mr. Reed.  In regards to the FEC? 

Mr. Werfel.  Yes. 

Mr. Reed.  And it says, perhaps the FEC ‑‑ and we are referencing Tea Party applications, and it was in reference to, I believe, a media article that Ms. Lerner was giving some opinion or expressing some opinion on, and it said in response to that, “Perhaps the FEC will save the day.” 

Do you know what she was referring to? 

Mr. Werfel.  Again, I am not exactly sure.  I would be speculating. 

Mr. Reed.  Do you know what article she was referring to? 

Mr. Werfel.  I don’t remember off the top of my head, but I do remember asking questions and raising a concern, and this is the one that ‑‑

Mr. Reed.  Sure.  And who did you ask a question of? 

Mr. Werfel.  Again, my leadership team. 

Mr. Reed.  And did they find ‑‑ give you any information as to what article she was referring to? 

Mr. Werfel.  Again, just off the top of my head, I don’t remember the exact article.  I apologize.  If you want to ‑‑ 

Mr. Reed.  Do you remember the substance of the article? 

Mr. Werfel.  I don’t, I apologize. 

Mr. Reed.  It was something about the Senate activity and the contributions from these organizations going to ‑‑ in regards to the Senate majority being held by the Democrats, and it was a threat to the Senate majority Democratic ‑‑

Mr. Werfel.  Yes, okay. 

Mr. Reed.  Does that refresh your memory? 

Mr. Werfel.  That does refresh my memory, I appreciate that.

Mr. Reed.  So when Lois Lerner, who is in charge of these applications, these Tea Party applications, makes a statement in an email, “Perhaps the FEC will save the day,” do you think there is any political connection or opinion she is trying to express there? 

Mr. Werfel.  I don’t know.  The initial conclusion I reach is that it warrants additional questions.  It is definitely worth flagging, but I just don’t know.  It would be just speculation on my part.

Mr. Reed.  And let me ask you ‑‑

Mr. Werfel.  Go ahead. 

Mr. Reed.  Let me ask you one question.  Isn’t it true that the agency asked Ms. Lerner to resign? 

Mr. Werfel.  Again, that is information that is protected by the Privacy Act. 

Mr. Reed.  No, it is not.  I am asking what your agency did.  It has nothing to do with what Ms. Lerner did or what she did; it is asking what you did on behalf of the agency.  Did you ask her to resign? 

Mr. Werfel.  Can I consult with my team to make sure, because, again, I don’t ‑‑ I am not sure ‑‑

Mr. Reed.  Well, I don’t know why you would need to consult.

Mr. Werfel.  I am not sure.  I can get back to you, but I am not sure I can answer the question.

Mr. Reed.  It is what you did.  It is what you did.  Did you ask Ms. Lerner to resign? 

Mr. Werfel.  I don’t want to answer the question unless I have permission ‑‑

Mr. Reed.  You have an obligation to answer that question as a member of this committee or else you will face criminal sanctions as a result of it.  Did you ask her to resign? 

Mr. Werfel.  I am being told by my attorney sitting behind me that I cannot answer that question under the Privacy Act.  I can answer ‑‑ I potentially can answer that question in another setting. 

Mr. Reed.  Why is that a Privacy Act, what you did?  How is that a Privacy Act?  I want your attorney then to be put under oath and get up here and explain to me why you are not answering my question as to what you did in regards to this investigation. 

Mr. Crowley.  Mr. Chairman, will the gentleman yield? 

Mr. Reed.  No, I won’t yield.  I want an answer. 

Mr. Crowley.  His time has expired.  Mr. Chairman, the gentleman’s time has expired.  Will he yield for a question? 

Mr. Reed.  No, I will not yield.  I want an answer to the question.

Mr. Crowley.  Mr. Chairman, point of information. 

Mr. Reed.  You have an obligation ‑‑ 

Mr. Crowley.  Mr. Chairman, point of information. 

Mr. Reed.  I will hold you accountable.  I will hold you accountable as a member of this subcommittee. 

Chairman Boustany.  Mr. Reed, suspend.  Mr. Reed, your time has expired. 

Mr. Crowley.  Point of information, Mr. Chairman. 

Chairman Boustany.  You are raising a point of order? 

Mr. Crowley.  A point of order.  A point of information.  I am asking a question of the committee. 

Chairman Boustany.  Ask your question. 

Mr. Crowley.  The first ‑‑

Chairman Boustany.  Be brief about it. 

Mr. Crowley.  Sorry?

Chairman Boustany.  Be brief about it.

Mr. Crowley.  This particular memo and the previous memos, who redacted these memos? 

Chairman Boustany.  It is my understanding that these redactions are to protect private information, 6103. 

Mr. Crowley.  My question is, Mr. Chairman, who redacted the memos?  Was it done by the IRS? 

Chairman Boustany.  No, no, this was committee staff. 

Mr. Crowley.  Can we go back to the first memo, Mr. Chairman.  The “Tea Party matter very dangerous,” without knowing what else is behind there, that is taken out of context.  I am sure Holly’s protection was not important because Holly is mentioned.  I don’t know who Holly is. 

Chairman Boustany.  The gentleman will suspend.  Will the gentlemen suspend? 

Mr. Crowley.  Yes. 

Chairman Boustany.  Mr. Levin has access to that information. 

Mr. Crowley.  That is not my question.  I asked who redacted it, and unless the public, which is before a public committee can see, if we have access to it, why is it certain aspects were redacted ‑‑

Mr. Reed.  Will the gentleman yield? 

Mr. Crowley.  ‑‑ which leaves someone with a different impression. 

Mr. Reed.  I still want an answer to my question.

Mr. Crowley.  I don’t have the time.

Chairman Boustany.  Hold on, hold on. 

Mr. Crowley.  Mr. Chairman, I don’t have the time to yield. 

Mr. Reed.  Well, you have no time, so therefore I deferred to ‑‑

Chairman Boustany.  Both gentlemen, both gentlemen, both gentlemen will suspend. 

Mr. Crowley.  We are not friends anymore.  Just kidding, just kidding. 

Chairman Boustany.  Mr. Crowley, you will suspend.  Thank you. 

Mr. Levin has that information.  That is as much as I am going to say about that. 

Mr. Crowley.  But, Mr. Chairman, again ‑‑

Chairman Boustany.  No, no, no.

Mr. Crowley.  Point of information, Mr. Chairman.

Chairman Boustany.  I have given you the information. 

Mr. Crowley.  What is the purpose of redacting this matter?  That is the question I am asking. 

Chairman Boustany.  Mr. Crowley, you are out of order. 

Mr. Crowley.  Mr. Chairman, I am asking a simple question:  What is the purpose of redacting this statement and not redacting Ms. Holly’s name, who obviously ‑‑

Chairman Boustany.  The gentleman will suspend.  All time has expired.  This committee has now reached a conclusion of its questioning of the witness. 

Mr. Werfel, I want to thank you for appearing before us.

Mr. Werfel.  Can I just make one clarification in response to Mr. Reed’s question? 

Chairman Boustany.  Yes. 

Mr. Werfel.  Which is if the record for this hearing is going to be kept open for a few days, what I would like to do, because I really do want to be as responsive as I can, is go back to the IRS, confer with my attorneys what are the appropriate legal constraints I have in answering that question.  If I can answer that question, and the record is still open, I will submit an answer officially for the record.  If I cannot answer that question, I will reach out directly to you, Mr. Reed, explain it, and have our staffs get together or us get together in person to work through the issue together.  That is my commitment. 

Chairman Boustany.  Thank you. 

Mr. Reed.  Appreciate it. 

Chairman Boustany.  Thank you, Mr. Werfel. 

As we conclude this, once again I want to reiterate how important it is to get these documents to the committee so that we can fully investigate this and complete this investigation.  It will be in your best interests, the IRS’s best interests, and in the best interests of the American people.  There are very disturbing things that we found in the documents we have seen so far with regard to the examination process, and we are going to continue to look at this. 

So, Mr. Werfel, we thank you.  Please be advised that Members may submit additional written questions that can be answered in writing, and those answers as well as the questions will be made part of the formal hearing record.

Chairman Boustany.  The subcommittee now stands adjourned. 

[Whereupon, at 3:38 p.m., the subcommittee was adjourned.]